Best Airline Credit Cards of 2020

How are the number of miles required for a flight determined?

Frequent flier miles are a loyalty program perk offered by many airlines to influence a consumer’s decision to fly a particular airline over another so that they can accumulate enough points/miles to be awarded a free seat upgrade, free domestic flight or free international flight. The number of miles awarded for these perks is based on the average cost to the airline to deliver customers from point A to point B, as well as the perceived value of these perks to the average customer.

Airlines also sell the ability to accumulate miles to partner companies to award to their customer base as well. Typically, airlines will award free domestic tickets to passengers after accumulating approximately 15,000 airline miles and free international tickets to passengers after accumulating 40,000 airline miles.

Perceived value for these items typically runs between approximately 2.3 cents per mile for domestic flights and 3.8 cents per mile for international flights. However, what you get for these perks normally equates to 1 cents per mile for domestic flights and 2 cents per mile for international flights. So the airlines are still making money off these “perks.”

What makes for a good rewards program?

One should consider it from both the consumers’ and the brands’ perspectives.

From the consumers’ perspective, customers should feel there is value to the program that makes it worth their effort. This is essentially a cost-benefit analysis, which we all do all the time. Customers weigh items such as how often they believe they’ll be able to be rewarded, how often they’ll use the service to accumulate rewards, what the requirements are to be rewarded, how flexible the rewards are in terms of use with one or multiple airlines, and what it will cost them in terms of time and money. With airline credit cards, consumers consider what fees might be incurred on a monthly or annual basis, what the penalties might be if they don’t pay off the card in full every month, what the interest rates are, and how many places the credit card can be used.

From the brands’ perspective, the most important element in co-branding is that it must be of equal value to each participant. That is, an airline and a credit card company or bank must derive equal benefits from the relationship. For airline credit cards, the card supplier benefits from income it receives in the form of service charges levied on the vendor where the consumer uses the credit card, interest assessments added to a statement when the user doesn’t pay the card in full each month, as well as fees it charges to the consumer to use the card on an annual basis. For the airlines, they benefit from the fact that most people will purchase an additional ticket or tickets when they travel, thus increasing the carrier’s income for the flight, as well as fees for items such as extra bags being checked or seat upgrades that traveler chooses.

What is the best way to redeem credit card miles?

Customers should redeem miles when doing so will help them realize value. For example, let’s say that a customer would like to travel to Mexico and is uneasy about spending money on a hotel room. If using miles will change a customer’s view of value to the extent that the purchase has more benefits than costs, then customers should redeem miles. Don’t use miles for routine purchases which already are seen in a favorable light, rather, use miles for purchases that need a dose of extra value.

When is an airline credit card worth it?
The travel card is only worth if the benefits exceed the costs of having one. If one ends up paying a high yearly annual fee (over $100) or high interest rates on balances, it is worth considering whether the annual benefits exceed the cost of having the card. Customers should in advance whether it is easy to redeem the rewards (fewer blackout dates and restrictions on destinations).

If one travels often, and usually with the same airline, and like the perks of checking free bags, priority boarding or free nights at a hotel, an airline card issued by a specific brand may be the better option. On the other hand, if someone values generic rewards, and don’t like to be tied to specific airlines, hotel chains or car rental agencies, a general travel rewards card may be the better alternative.

Is it worth signing up for an airline credit card on the plane, or are you better off waiting for another time?
Airline passengers are already at something of a loss when it comes to things to occupy their attention, and the airlines know this… I would not recommend applying for an airline card “in flight” to the casual air traveler who doesn’t fly more than a couple of times a year–if you’re interested in a “miles” card, I strongly suggest doing your homework and searching for an offer when you have time to compare the many available options.

How should a consumer choose between cards offering points, miles, or cashback?
Choosing wisely between cards with different kinds of rewards is difficult to do unless a consumer thoroughly understands their own spending patterns. It is easier than ever for people to track and analyze their expenses through free or low-cost apps. Once a consumer understands their spending and has considered any changes they want to make, they are in a much better position to choose a card that will be maximally rewarding.

How can consumers get the most value when redeeming credit card points or miles?
Consumers should carefully consider which card offers most of what they value most for the long term. Setting goals for valued rewards that may take a while to earn (e.g., round trip business class to an international destination) helps. Understanding when and how an airline of choice offers lower reward thresholds can result in valued rewards for fewer points. For example, United has an infrequently used classification that makes business class available for a fraction of the usual number of miles, but you need to be either lucky or smart to find a flight on which it’s available, and you need to plan and do your search well ahead of your travel time.